Politics and environmental policy: theory and evidence from US states

We develop a two dimensional political agency model, which is in the spirit of the political agency literature. A politician, who faces peridic elections, has to decide on the level of public spending and an environmental regulation. We introduce a term limit into this model and develop the predictions of the model for the differences in envrionmental policy between years in which the politician does and does not face a binding term limit. These predictions are tested on panel data on environmental policy choices of US governors for the years 1960-98.